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Germany's auto industry: suppliers' confidence waning

Klaus Ulrich
July 29, 2023

German car manufacturers and suppliers have been financing the development of new e-car models with profits from the combustion engine business. But this is being cut back more and more. And many fear for their jobs.

A young femal worker screwing a phase cable to an electric motor in the assembly hall  at ZF Friedrichshafen AG
The ZF Friedrichshafen AG produces engines for e-carImage: Karl-Josef Hildenbrand/picture alliance/dpa

In early July, multinational engineering and electronics giant Bosch, or — to be more precise — the supplier division of the company that produces automotive components and other industrial products, announced an agreement between management and employee representatives on the future prospects of 80,000 employees in Germany, ensuring there will be no compulsory redundancies until the end of 2027. 

This will benefit workers in the traditional internal combustion engine sector. The transformation processes German automakers have been forced to start have affected suppliers, stoking fears of job losses. There are fears that the shift to electromobility will cost many jobs. 

Electric drives are simple in design 

Power units for e-cars are made up of significantly fewer parts than combustion engine technology. German carmakers are increasingly investing in the development of software for electronic networking and driver assistance systems. This shift has led to retraining where possible, but also job losses for combustion engine specialists.  

Stefan Hartung and the BOSCH logo
'The goal of the transformation must be to make it as socially acceptable as possible,' says Bosch CEO Stefan HartungImage: Bernd Weißbrod/picture alliance/dpa

The VW Group is restructuring its plants and is planning to set up more production sites in Eastern Europe for cost reasons. This news has already led to considerable unrest among the workforce at suppliers like Bosch. 

The supplier division is the largest sector of Germany's auto industry. It accounted for almost 60% of the €88 billion ($98 billion) in sales the company generated last year. Worldwide, more than half of the approximately 420,000 employees work in this division. 

Transformation will take a long time 

"The goal of the transformation must be to make it as socially acceptable as possible," Bosch CEO Stefan Hartung recently told German weekly Welt am Sonntag.  

There are 1.4 billion vehicles on the road worldwide, and the entire auto industry currently has a production capacity of just under 90 million vehicles per year, Hartung said. To illustrate the dimensions of the change, he calculated that "even if we were to build only all-electric vehicles starting tomorrow - which is impossible simply because of a lack of battery capacity - we would need at least 15 years to replace them all." 

Business is picking up again following massive supply chain problems and the chip crisis in the wake of the COVID-19 pandemic. The world's 100 largest auto suppliers have seen their sales expand strongly thanks to price increases and higher vehicle production. According to a study by Berylls, a management consultancy specializing in the automotive sector, they grew by 16% last year compared with the pre-pandemic year 2019, breaking a trillion euros for the first time. 

Inside of an autonomous Volkswagen with a man sitting at the wheel with his hands idle on a road near Munich in July 2023
Volkswagen is investing in the development of self-drive e-vehiclesImage: Lukas Barth/Reuters

Sales rise, profits shrink 

Higher prices of raw materials and energy have been eating away at profit margins. But not all global regions have been affected in the same way. "While Europe suffered from high energy costs, Chinese companies were hardly affected. This effect was particularly strong in Germany," the study said. 

German suppliers Bosch, ZF Friedrichshafen and Continental continue to top the list of top 100 suppliers, along with Japan's Denso Group. From Germany, Mahle, Schaeffler, Brose, Eberspächer, Dräxlmaier and ThyssenKrupp are also among the big players.  

But "Korean and Chinese suppliers are making exceptionally strong gains, while the market share of German and Japanese companies continues to decline," Berylls' wrote. 

In the coming years, the shift in favor of Chinese suppliers is likely to continue, says Berylls partner Alexander Timmer. "Key drivers for this are the advancing electrification and digitalization of vehicles."  

At the moment, German manufacturers are still feeding off the high order backlog that piled up last year due to a lack of components. But new orders are hardly coming in because of the uncertain economy. According to the German Automobile Manufacturers Association (VDA), 20% fewer orders were registered in June than in the previous year. Since the beginning of 2023, domestic orders have fallen by 27%. 

China: German car bosses' risky game

Business outlook is extremely negative 

According to a survey published in July by the Munich-based Ifo Institute, German automakers said the outlook is the worst its been since the international financial crisis. The corresponding indicator fell for the fifth time in a row. 

"There is a lot of uncertainty among carmakers, as there was at the beginning of the war in Ukraine or when the risk of gas rationing for the industry increased significantly in the fall," said Oliver Falck, head of the Ifo Center for Industrial Economics and New Technologies.  

And this explains why German suppliers are more pessimistic about the future than they have been for a long time. 

This article was originally written in German.

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